Abstract
The research article presents catalytic and innovative mechanisms for the use of fiscal grant funding to crowd in private sector investment for water infrastructure projects in the Republic of South Africa. Chapter Two of the South African Constitution (1996) includes a series of socio-economic rights, of which the right of access to water is one of those afforded its people, but this access is not currently provided to the entire population. The study uses a mixed methods approach, utilizing both quantitative and qualitative data sequentially. The data gathered involved a non-random purposive sample of best practice from European Union-funded projects internationally, South Africa-based projects, and qualitative interviews with officials from international development finance institutions and the National Treasury. It was found that the strategic targeting of grant funding to mitigate project risks, better enabled investor confidence. Through the use of three innovative financing tools, specifically investment grants, interest rate subsidies and technical assistance, government was able to leverage further investment into projects. The research concluded that blended grants for debt financing should be a consideration in South Africa. Specifically, as the current challenges in the water sector relate to constrained financial gaps, as well as capacity and skills deficits, these could be addressed strategically and deliberately through the use of blended fiscal grants targeting innovative financing tools. To allow for blending as recommended, budget reforms in South Africa are necessary.
Highlights
The South African government acknowledges that access to water is a high priority on its developmental agenda and through its National Development Plan (NPC, 2011)
During the round 1 of the interview with the international development finance institutions (iDFIs), it was stressed that in their experience, the South African government is curtailed by an approach where financing water projects is limited to only what the fiscus can buy
This study found that within the water sector, the use of risk mitigation instruments addressed the concerns of the private sector to allow for their participation and inclusion, through the financing tools of investment grants, interest rate subsidies and technical assistance
Summary
The South African government acknowledges that access to water is a high priority on its developmental agenda and through its National Development Plan (NPC, 2011). The 2013 budget was the first budget in which the fiscal allocations were aligned with the framework of the National Development Plan and for the first time it included a chapter in the Budget Review on infrastructure development and investment. This chapter outlines a set of so-called “mega projects”, which are under consideration by the South African government for the period 2013–2023. The total projected value of these mega projects amounted to R3 592m and covered a wide range of sectors including water, transport, electricity, liquid fuels, education, health, telecommunication and human settlements. The water sector projects, in terms of rand value, constitute only 3.6% of the projected expenditure of all the listed mega projects (RSA, 2013).
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